Canada regulators to propose extended poison pills

By Alastair Sharp and Euan Rocha

4 Min Read

TORONTO (Reuters) - Canadian securities regulators want to change the rules on takeover defenses to make it more difficult for hostile bidders to buy Canadian companies, aiming to set up a national framework for dealing with corporate raiders, according to regulatory officials and lawyers briefed on the matter.

The plan, due to be published in draft form on March 14, is designed to bring more coherence to Canada's regulatory regime after provincial regulators have issued contrasting rulings on so-called "poison pill" defenses in recent takeover bids, the sources said.

Even so, the regulator for the province of Quebec said it is planning its own proposal that would give even more power to the boards of target companies in Quebec than would the main proposal from Canadian Securities Administrators, an umbrella group representing provincial authorities. There is no national watchdog for securities in Canada.

Poison pills effectively raise the price of a hostile takeover by enabling existing shareholders to buy additional stock in the target company at a discount. Current Canadian rules limit their use to between 40 to 70 days, while the company looks for a "white knight" to make a more acceptable acquisition offer.

The plan, which would bring Canadian rules more in line with those in the United States, would allow companies to keep poison pills in place almost indefinitely once they are approved by shareholders.

The new proposal comes as concerns about foreign control of domestic companies are growing in Canada.

A prominent example was an unsolicited C$1.8 billion ($1.75 billion) bid for Rona Inc RON.TO by U.S.-based Lowe's Cos Inc (LOW.N). The proposal sparked a wave of political opposition in Quebec, where the home improvement chain is based, and Lowe's ended up withdrawing it.

The Quebec regulator wants to go further than the CSA in protecting companies based there. Its proposal would not require that shareholders approve a poison pill, enabling a target company's board to impose the pill unilaterally.

"From a policy perspective, enabling boards to negotiate with a bidder strikes me as a good proposal," Louis Morisset, the superintendent of securities markets in Quebec, said in a phone interview.

"We as regulators should recognize that boards of directors have a fiduciary duty to the corporation and should limit our intervention to clear cases of abuse," he said.

Morisset said the Quebec proposal was not a response to any specific deal, and he did not expect it to impede future bids for Canadian companies.

A period of public consultation will begin after both the Quebec and national proposals are published. The plans were first reported by the Globe and Mail, which cited sources it did not identify.

The CSA expects to present a draft policy in mid-March, said Mark Dickey, a spokesman for the Alberta regulator, which currently heads the rotating leadership of the CSA. He declined further comment.

In 2010, the British Columbia securities regulator quashed a poison pill defense initiated by Lions Gate Entertainment Corp, while it was being eyed by corporate raider Carl Icahn, ignoring a planned shareholder vote on the matter. Icahn eventually walked away from the proposal.

That ruling contrasted with the Ontario Securities Commission's September 2009 decision in the Neo Materials case, where the regulator ruled that because it had been ratified by shareholders, a poison pill could remain in place for an indeterminate time to fend off an unsolicited partial takeover bid.